Buying a home is one of the biggest purchases you'll ever make, so there's no question that you should make an effort to spend your money wisely. Especially when you're unfamiliar with the process, it's easy to make mistakes that can have a big impact on your wallet. With that in mind, here are some of the biggest money mistakes buyers make.
By Tara Mastroeni
Forgetting to shop around for a lender:
Buyers need to remember to shop around when it comes to obtaining a mortgage. You might meet a lender who, on paper, offers the most competitive rate, but don't forget to take into account other factors as well. Some banks may have special programs for first-time home buyers, or they may put money toward closing costs, or toward your downpayment. Your goal should be to find the loan that makes the most sense for you, overall.
Not working with a lender before shopping for a home:
Some buyers fail to get their finances and credit score in order, work with a lender and get pre-approved before they start their home search. Ideally, buyers should make certain they are vetted with a lender and ready to go prior to their home search. This ensures that when they see a home they absolutely love, they can move on it quickly. There's nothing worse than seeing the hurt and disappointment in a buyer who has fallen in love with a home, but is not financially ready to make an offer.
Buying a home above your budget:
Don’t look for a home that's at the very top end of your monthly budget. You need to consider what you'll do if your income goes down or some other unexpected expenses suddenly come up. Also, when buying a home, you need to factor in added costs such as higher heating and cooling, property taxes, maintenance costs. You'll also want to leave room in the budget for other expenditures such as saving for things like retirement, college funds for your children, or vacations.
Skipping the home inspection:
A lot of buyers who are penny wise and pound foolish. They think they can save a few hundred dollars by skipping inspections. While this may be true, skipping inspections can lead to them spending thousands of dollars in necessary repairs down the road.
Opening new lines of credit during underwriting:
One of the biggest financial mistakes a buyer can make is opening new lines of credit during underwriting, Whether they purchase a car or open new credit cards to purchase furniture are huge mistakes because the underwriter has to include the new debt with their debt-to-income ratio.
Unfortunately, people believe if they have an approval or conditional approval from their lender it’s okay to open the new lines of credit, but what they fail to realize is that the underwriter has to pull a new credit report on the day of closing to ensure they haven’t obtained any new debt. Of course, if they have, then the lender has to recalculate the new debt-to-income ratio and may not be able to issue a new approval.
Contributor for Forbes Magazine: Tara Mastroeni